August 11, 2006
Let there be light...
In just one short week, we will re-initiate the weekly Contracts Prof spotlight. Each week, ContractsProf Blog will shine the spotlight on a contracts teacher -- presenting the individual stories of scholarly achievements, teaching innovations and public service.
We will begin the spotlight series by focusing individuals who are just beginning their law teaching careers. So if you are a new contracts teacher, please email me to be included in this series. (Don't be shy!) We will also post bios of more experienced Contracts Profs, so please feel free to contact me if you would like to have your profile featured.
[Meredith R. Miller]
"Thriller" Star Objects to Arbitration
A Los Angele County judge will decide whether Michael Jackson has to go to arbitration in a dispute with German concert promoter Marcel Avram. The $21 million dispute arose out of Jackson's failure to do two concerts in 1999. There was a $6.5 million settlement back in 2002, but Avram apparently is claiming some additional damages on grounds not covered in the settlement. Jackson's lawyers say the star got a full release, and are trying to enjoin Avram's arbitration petition.
Bridgeman on Default Rules
Metaphors are important in law. Take the issue of what rules apply to a transaction when the parties have not specified them. In the old days, we tended to think of these as "background" rules, a metaphor that suggested there was a kind of neutral backdrop, largely unchanging, covering generally acceptable and unquestioned sorts of things. But with the advent of the personal computer came the metaphor of the "default" rule. A default is something deliberately chosen for some reason -- the very concept implies that someone is selecting a particular setting from a menu of choices. With the concept of "default" rules, the background moves into the foreground.
Hence the growing literature over default rules, the subject of a recent symposium at Florida State. FSU's Curtis Bridgeman weighs in with his take in Default Rules, Penalty Default Rules, and New Formalism. Here's the abstract:
This essay is a contribution to a symposium on default rules held at Florida State University College of Law. In this symposium, Eric Posner makes a compelling argument that there are no penalty default rules in contract law, a claim that no doubt comes as a surprise to many contracts scholars. In passing, he cites Bob Scott and Alan Schwartz, who argue that there are few or no default rules in contract law, and who call for a return to formalism. Although Posner’s logic is at one level iron-clad -- if there are no default rules, then there are no penalty default rules -- I argue that he is mistaken to cite new formalists like Scott and Schwartz as fellow travelers. This is not a central point of Posner’s, and therefore my essay is not meant as a critique of his main arguments. Instead, I use this part of his discussion as an occasion to examine recent calls for a return to formalism in contract law. In particular, I focus on two distinctions Posner makes: first, between default rules and legal formalities, and second, between default rules and rules of interpretation. I argue that Scott and Schwartz are implicitly committed to collapsing both of these distinctions, and in fact offer a formalistic vision of default rules of interpretation, a vision that is, ironically, more in the spirit of a penalty default. Along the way, I briefly compare their view to classical formalism, and to Lon Fuller’s famous article on legal formalities. My hope is that this discussion will set the stage for a more thorough assessment of new formalism in contract law, an assessment that is, unfortunately, beyond the scope of this essay.
I'm Not Dead Yet . . . .
A trial judge has set a May 2007 trial date for a potentially interesting breach of contract action between the Houston Astros and Connecticut General Life Insurance, which provided a disability policy for star first baseman Jeff Bagwell, who has $17 million in guaranteed compensation still due under his contract with the Astros. Under the policy, if Bagwell (who last year was the 7th highest-paid player in baseball) is just kind of hurt and can't play well, the Astros have to eat the money. If he becomes totally disabled, the insurer picks up about $15.6 million of the tab.
Back in January rumors were circulating that the Astros were said to be pressuring Bagwell to declare himself totally disabled. In 2003 he played in 160 games and was in the top ten in home runs, but he tailed off in 2004, and in 2005 injuries limited him to 24 games. He showed up for spring training this year and played several games, but hit only .219 when the Astros decided to make the insurance claim. Connecticut General turned down the claim, apparently believing that Bagwell was capable of playing, even if he was no longer an all-star.
An interesting look at how this kind of insurance works is here.
August 10, 2006
Extreme Makeover: Unconscionability Edition
In a relatively recent case, a California appellate court refused to enforce an arbitration clause on unconscionability grounds.
Five orphaned siblings ("petitioners") who appeared in an episode of the television program "Extreme Makeover: Home Edition" challenged an order compelling them to arbitrate most of their claims against various entities involved with the production and broadcast of the program ("television defendants"). The California court held that the parties' agreement was adhesive and that the arbitration clause was procedurally unconscionable because:
[it] appears in one paragraph near the end of a lengthy, single-spaced document. The entire agreement was drafted by the television defendants, who transmitted copies of it to the petitioners. The television defendants knew petitioners were young and unsophisticated, and had recently lost both parents. Indeed, it was petitioners' vulnerability that made them so attractive to the television defendants. The latter made no effort to highlight the presence of the arbitration provision in the Agreement. It was one of 12 numbered paragraphs in a section entitled "miscellaneous." In contrast to several other paragraphs, no text in the arbitration provision is highlighted. No words are printed in bold letters or larger font; nor are they capitalized. Although petitioners were required to place their initials in boxes adjacent to six other paragraphs, no box appeared next to the arbitration provision. It is true that the top of the first page advises petitioners to read the entire agreement before signing it and the second-to-last paragraph states that the person signing acknowledges doing so. This language, although relevant to our inquiry, does not defeat the otherwise strong showing of procedural unconscionability.
The court held that the provision was also substantively unconscionable because of its "harsh, one-sided nature" -- the television defendants (though not the petitioners) could compel arbitration without fearing that doing so would preclude the television defendants' right to injunctive or other equitable relief in court. Additionally, only the petitioners (and not the television defendants) waived the right to appellate review of an arbitration.
Higgins v. Superior Court, 140 Cal.App.4th 1238 (Cal. App. 2d Dist 2006).
[Meredith R. Miller]
"Funny Girl" Contract for Sale
Up for aution on eBay this week is one of the original contracts by which Jules "Nicky Arnstein" Arnold assigned the rights to his unpublished autobiography to his children Frances Brice Stark, and William Brice. Arnstein, a professional gambler who turned to crime and did stretches at Leavenworth and Sing Sing, was married to radio star Fanny Brice.
Frances Stark happened to be married to Hollywood producer Ray Stark, and the work would later become Funny Girl.
Celebrity Contract Disputes
Two celebrity breach of contract claims are in the news this week. In one, actor Courtney B. Vance's former agency is suing the former Law and Order:Criminal Intent star, claiming he terminated his contract to avoid paying fees due them. In the other, In another, rap producer Dr. Dre and record impresario Jimmy Iovine (Stevie Nicks, U2, Tom Petty) are suing a headphone manufacturer for breach of contract over a project to create "Beats by Dr. Dre" headphones.
Unconscionability and Arbitration in New Jersey
In a pair of recent cases, New Jersey courts have knocked out arbitration clauses on unconscionability grounds. In his LawMemo blog, Ross Runkel has posts here and here. which notes the two decisions and provide links. Between them, the two cases seem to hold that a clause will be unconscionable if it tends to work to the disadvantage of a consumers, as by requiring them potentially to pay the costs of the arbitration, or limiting the discretion of an arbitrator to award them fees.
An odd thing about the cases are that the court seems to be using "unconscionable" simply as a synonym for "contrary to public policy." This use of language is presumably because states aren't permitted to have public policies that contradict the Federal Arbitration Act, but can rely on common law contract doctrines like "unconscionability."
August 9, 2006
Signs of the Apocalypse
Law reviews are no longer taking submissions in WordPerfect.
Looking a Gift Cow in the Mouth?
An angry widow is suing her dance instructors for a refund of her lesson fees, after one of them called her a "fat cow" and told her to "move her arse" at a dance club.
This wouldn't be of much interest, except that the widow is wealthy and powerful Mimi Monica Wong, the top private banker for HSBC Bank in Hong Kong, the instructors include Gaynor Fairweather, MBE, a 14-time world champion generally regarded as the greatest female Latin dancer of all time, and the contract was an eight-year, $15 million dollar deal. Wong is suing for the return of her money, while the instructors are seeking the balance due on the deal.
Much of the commentary seems to be about the extraordinarily large amount that Fairweather was paid for eight years of unlimited lessons and competitions. But how much would you have to pay, say, Martina Navratilova for eight years of unlimited tennis lessons and playing as your partner in any doubles competition you chose?
Costly Drafting Errors
A recent dispute between two Canadian telecommunications companies about an allegedly misplaced comma in a contract has been in the news lately. It's one of those interpretation problems where the comma seems to be in the wrong place, but there's no obvious right place for it.
Contract lawyer and adjunct Penn law professor Ken Adams runs down the dispute (or, I mean, runs down the facts of the dispute) on his Adams Drafting blog. He offers this gem of advice that we ought to keep hammering into our students' heads: "If the meaning of a contract provision could be significantly altered by adding or omitting a comma, you’re probably better off rephrasing it." Adams is the author of A Manual of Style for Contract Drafting.
August 8, 2006
Apologies to all our regular readers for the spottiness of the blog the last month or so, but with the new semester in sight, we're back up and running at full speed.
Makes sure you send your news, articles, and tips to us for inclusion here. This is, after all, YOUR Section blog, and we want to make it as helpful and relevant to you as we can.
Should Litigants Be Allowed To Settle Cases Confidentially?
The law (or maybe, the judge) favors settlements. It favors them so much that agreements to keep the details of settlements secret are routinely enforced. The parties to lawsuits agree to such terms because they are in the interests of both the plaintiffs (who get what they wanted) and the defendants (who avoid having to publicly admit anything).
But should parties be allowed to make those decisions, even when they both want to? Should the law permit parties to agree to confidentiality in settlements? That's a controversial issue, and Scott Moss (Marquette) weighs in the on the topic from a law-and-economics perspective in a new paper, Illuminating Secrecy: A New Economic Analysis of Confidential Settlements. Here's the abstract:
Even the most hotly contested lawsuits typically end in a confidential settlement forbidding the parties from disclosing their allegations, evidence, or settlement amount. Confidentiality draws fierce criticism for harming third parties by concealing serious misdeeds like discrimination, pollution, defective manufacturing, and sexual abuse. Others defend confidentiality as a mutually beneficial pay-for-silence bargain that facilitates settlement, serves judicial economy, and prevents frivolous copycat lawsuits. This debate is based in economic logic, yet most analyses have been surprisingly shallow as to how confidentiality affects incentives to settle. Depicting a more nuanced, complex reality of litigation and settlement, this Article reaches several conclusions quite different from the economic conventional wisdom - and absent from the existing literature.
First, contrary to the conventional wisdom that banning confidentiality would inhibit settlement, a ban may promote early settlements. No ban could effectively cover settlements reached before litigation, so any ban would incentivize parties to settle confidentially pre-filing - and such early settlements save more litigation costs. Second, a ban would affect high- and low-value cases differently, depending on whether publicity-conscious defendants worry more about one big settlement or several small ones. Third, more settlement data could help parties settle and also, by decreasing litigation uncertainty, deter frivolous litigation. Fourth, more settlement data could reveal which companies engage in unlawful practices, yielding more efficient decisions by consumers, workers, and investors who otherwise engage in over-avoidance when unable to distinguish hazardous from safe goods.
In sum, a confidentiality ban would decrease settlements of cases already in litigation but it would have many countervailing positive effects: increasing pre-filing settlements; deterring frivolous lawsuits, and improving product and job market decisions. We cannot predict the net effect of all these competing effects, however, contrary to the traditional economic story. Economics thus does not counsel against a confidentiality ban; jurisdictions adopting a ban would be undertaking a worthy experiment with a promising but uncertain policy.
This analysis typifies the schism between traditional economic analyses, which reach definite conclusions by simplifying complex realities, and many contemporary economic analyses, which are realistically nuanced but do not yield categorical conclusions. Ultimately, the latter brand of economics is sounder and still can clarify important matters such as parties' incentives, rules' costs and benefits, and the tradeoffs and competing effects of a policy like a confidentiality ban.
"At Will" Means Exactly That
After decades of waffling in California, it's official: "At will" employment literally means "at will." Where an employment agreement specifies that it is at will, courts in the Golden State will not imply a "for cause" limitation on firing. The ruling by the California Supreme Court clarifies things in the wake of appellate decisions that previously had been all over the board.
In the case, Dore v. Arnold Worldwide Inc., 06 C.D.O.S. 7078, the employee argued that the "at will" language was ambiguous, and offered evidence of an implied-in-fact agreement not to terminate without good cause. The Second District Court of Appeals agreed in 2004, holding that summary judgment for the employer was improper. The employee's evidence in that case was typical of these sorts of disputes:
Dore interviewed for the position with several of Arnold’s officers and employees. These officers and employees had been with Arnold from five to twenty-five years. In the interviews Dore was told Arnold had landed a new automobile account in its Los Angeles office and needed someone with his background and experience to handle the account on a “long-term” basis. Among other things, Arnold officials told Dore if hired he would “play a critical role in growing the agency,” Arnold was looking for “a longterm fix, not a Band Aid,” and Arnold employees were treated as “family.” Dore also learned the fate of the last two persons to hold the management supervisor position in the Los Angeles office: one was fired for “financial indiscretions” the other was terminated because his work did not satisfy a major client.
Arnold offered Dore the management supervisor position by telephone in early April 1999. Dore orally accepted the offer and subsequently signed the bottom of a letter from Arnold signifying his acceptance of “the terms of this offer.” Dore acknowledges the letter did not specifically guarantee him a particular period of employment and did not specifically state he could only be terminated for good cause. Nevertheless, Dore testified that based on his conversations with Arnold officials he believed “as long as Idid a good job and that my position continued to exist, I would continue to be employed
That wasn't enough for the Supreme Court, which reversed, 9-0, in an opinion by Justice Kathryn M. Werdegar that held that the contractual term was not ambiguous and that the employer was entitled to summary judgment.
Interestingly, two judges in a concurring opinion went out of their way to call for a reexamination of California's famous (or infamous, depending on your view) parol evidence case, Pacific Gas & Electric Co. v. G.W. Thomas Drayage Co., 69 Cal. 2d 33 (1968).
[Frank Snyder -- hat tip to Scott Burnham]
August 7, 2006
Weekly Top 10
Hmm, you go away for a month or two and when you come back, the Top Ten list is full of bankruptcy and corporate stuff. Still, a couple of tasty contract-related articles on the list. Following are the top ten most downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending August 6, 2006.
1 The Limits of Enron: Counterparty Risk in Bankruptcy Claims Trading, Adam Levitin (Third Circuit).
2 Credit Derivatives & the Future of Chapter 11, Stephen Lubben (Seton Hall).
4 The Strategy of Boilerplate, Robert B. Ahdieh (Emory).
5 Rise of the Financial Advisors: An Empirical Study of the Division of Professional Fees in Large Bankruptcies, Lynn M. LoPucki & Joseph W. Doherty (UCLA).
6 From 'Federalization' to 'Mixed Governance' in Corporate Law: A Defense of Sarbanes-Oxley, Robert B. Ahdieh (Emory).
7 A Coasean Analysis of Marketing, Eric Goldman (Marquette).
8 Bankruptcy, Creditor Protection and Debt Contracts, Stefano Rossi & Nicola Gennaioli (Stockholm).
9 The Demand for Immutable Contracts: Another Look at the Law and Economics of Contract Modifications, Kevin E. Davis (NYU).
10 The Common Law as an Iterative Process: A Preliminary Inquiry, Lawrence A. Cunningham (Boston College).